Tuesday, April 08, 2008

More Greenspan Gobbledegook

This man is a great disappointment to me. Several decades ago, he was one of the few economists who made good economic sense, defending the gold standard and decrying excessive money and credit creation through centralized government monetary intervention.

Then he changed. During his tenure as Chairman of the Federal Reserve prior to Dr. Bernanke, he mastered what became known as "Fed-speak," muddled punctual declarations specifically intended to confuse, presumably to cover up the interventionist Fed's real intentions.

GreenspanCartoon
[Click on the image for a larger version.]

(For a couple more cartoons on the subject, see this one and this one.)

After all those years of blatant disregard of his own prior wisdom, he is now busy trying to defend his record, as we can read and hear in this latest interview in the Wall Street Journal.

Here's an example of his relatively new-found illogic as expressed through Greg Ip's paraphrasing:

"At the time [during his tenure], Mr. Greenspan expected his [low interest rate] policy to boost housing because the rest of the economy was relatively unresponsive to lower interest rates. Based on decades of his own research, he believed a buoyant housing market would spur consumers to borrow against home values and spend more. This would not produce a housing bubble, he predicted, because it was difficult to speculate in homes and the memory of the 2000 tech-stock bust remained fresh. [Italics added]

I would love to see some serious economists "have at" the former Chairman's specific research that gave rise to this second prediction. Since when is it difficult to speculate in homes? Real estate speculation has been part of the economic landscape both in good times and bad, and long before governments learned to inflate their currencies--and believe me, that was many, many centuries ago.

Here's the next paragraph:

"Mr. Greenspan now admits he was wrong about the improbability of a housing bubble. Yet he has long maintained that bubbles are an unavoidable feature of a dynamic economy. He pulls out a 1999 speech and shows, underlined in green marker, passages in which he warned of recurring but unpredictable patterns of overconfidence followed by investor panic. He does not share some foreign central bankers' belief that their job is to defend against excessive asset-price inflation: No sensible policy, he maintains, could have prevented the housing bubble."

I guess that means that if perchance his results don't tally with his expectations, then it must be the fault of some underlying economic axiom we could call the "Bubble Unavoidability Theory." Funny, I never heard of that one, and just because it's Greenspan who formulated it out of the blue does not a valid theory make.

Mr. Greenspan, if I were you, I'd get out a little of that humility syrup that you were taking back in the 1960s. And while you're at it, pull out and reread your old writings, put your thinking cap back on, and hie thee back to the research drawing table.

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1 Comments:

Anonymous Anonymous said...

The Perfect Storm?
Today during an interview on CNBC Former Federal Reserve Chairman Alan Greenspan said: “…for the first time in my memory we’ve had both the banking system and the securities markets in trouble. Historically, it was always one or the other…” Could he be describing The Perfect Storm? If so, how could that not be catastrophic?

4:56 PM  

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